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Free Markets, or Government Knows Best?

In 2009 the Department of Energy (DOE), under the Obama administration, began enacting the Loan Guarantee Program granting $37 billion dollars of taxpayer money to “green” energy companies in an attempt to boost alternatives to fossil fuels. The Loan Guarantee Program consists of three programs in total: Section 1703, Section 1705, and The Advanced Technology Vehicles Manufacturing (ATVM). The Department of Energy has claimed that this program saved or created 62,350 jobs. However, taking a closer look at the numbers, 30 percent of these jobs are temporary construction jobs while another 50 percent will be created at Ford Motor Company.

Under the 1705 loan program, taking up half of the funding form the Loan Guarantee Program, 2,378 permanent jobs were claimed to be created. If you do the math right, this works out to costing the taxpayer $6.7 million per job created. I don’t know about you, but if it takes the government $6.7 million to create one permanent job, something is wrong.

Reviewing how some of the companies of the recipients of the Loan Guarantee Program and the American Recovery and Reinvestment Act of 2009 (the stimulus package) produces some alarming findings. 

 Company

 Technology

 Government  issued  Loan/Grant

 Estimated             Permanent Jobs

Estimated Annual Generation Output (MWh)

Georgia Power Company

 Nuclear

 $8.33 billion

 800

 17,956,000

Solar Trust

 Solar

 $2.1 billion

 Bankrupt

 n/a

AREVA

 Nuclear

 $2 billion

 310

 n/a

Abengoa Solar, Inc.

 Solar

 $1.446 billion

 60

 944,000

NRG Solar

 Solar

 $1.237 billion

 15

 739,000

Solyndra Inc.

 Solar

 $535 million

 Bankrupt

 681,000

Abound Solar

 Solar

 $400 million

 1,200 (Bankrupt on  6/28/2012)

 1,906,000

LS Power Associates

 Transmission

 $343 million

 Bankrupt

 n/a

Ener1, Battery Maker

 Lithium-ion  batteries

 $118 million

 Bankrupt

 n/a

Kahuku Wind Power, LLC

 Wind

 $117 million

 10

 71,000

Record Hill Wind

 Wind

 $102 million

 8

 96,000

Cogentrix of Alamosa, LLC

 Solar

 $90.6 million

 10

 75,000

Beacon Power

 Storage

 $43 million

 Bankrupt

 n/a

 

The combined amount of money given to alternative energy companies, through the 1705 and 1703 Loan Programs, totals around $19.2 billion. According to the US DOE, 3,498 jobs have been or will be created because of these loans. This comes out to almost $5.5 million in cost per one permanent job created.

Unfortunately, these projected permanent jobs created are an overestimation, if you take away the jobs lost due to six of these companies going bankrupt. Solar Millennium Inc., LSP Energy LP, Ener1 Inc., Beacon Power Corp, Abound Solar, and Solyndra LLC combined have received over $3.5 billion from the Logan Program yet have produced zero jobs and hurt the fragile U.S. economy.  

Now it may be argued that the Loan Programs have done at least some good. The third and last program, Advanced Technology Vehicles Manufacturing (ATVM), has provided $8.5 billion worth of loans to mostly car companies, such as Ford, to update their factories making them more environmental friendly and efficient. ATVM has been projected to create 38,700 jobs (not necessarily permanent jobs) according to the DOE.

The effort of the Obama administration to create jobs and stimulate alternative energy growth has been a disaster. Comparing job creation and energy output in private sector companies producing mostly oil and gas, to government-sponsored alternative companies yields a stark contrast.

 Company

 Technology

 Jobs  Created

 Revenue  2011

 Energy output

BP

 Oil and Gas

 97,600

 $386.460  billion

 daily produces 3.4 million    BOE and 1.9 billion cubic  feet of natural gas

ExxonMobil

 Oil and Gas

 82,100

 $486.4  billion

 daily produces  3.921  million BOE (barrels of oil  equivalent)and 3.9  billion  cubic feet of  natural gas

Chevron

 Oil and Gas

 61,189

 $253.7  billion

 daily produces 2.763  million net oil-equivalent  barrels and 1.3 billion  cubic feet of natural gas

ConocoPhillips

 Oil and Gas

 29,800

 $251.2  billion

 daily produces 2 million  barrels a day and 1.6  billion cubic feet of  natural  gas

Chesapeake Energy

 Natural Gas

 12,600

 $11.64  billion

 daily produces 2.6 billion cubic feet of natural gas

Peabody Energy

 Coal

 8,300

 $7.97  billion

 9 billion tons of coal   reserves 

Arch Coal

 Coal

 7,442

 $4.2 billion

 3.1 billion tons of coal   reserves

Williams Energy

 Natural Gas

 3,900

 $9.6 billion  (2010)

 daily produces 1.2 billion   cubic feet of natural gas

Cloud Peak Energy

 Coal

 1,600

 $400  million

 1 billion tons of coal   reserves

 

These nine companies alone, granted they are some of the larger energy producing companies in the country, provide our country with nearly 303,000 jobs while at the same time costing the taxpayer a whopping zero dollars!  

So what’s the issue? Why can’t the government do just as good of a job at producing energy that private sector companies can? To answer this question we must go back to the fundamentals of economics. In the real economy, for businesses to survive they must make a profit by meeting the demands placed upon them by you and I–the consumers. What the government is trying to do is create a demand for alternative energy that is simply not there. Instead of responding to the demands of consumers, the government has its own agenda it wants to force into the market. That agenda is the reduction of greenhouse gases via green energy. Unfortunately for them such a market does not exist so companies like Solyndra and Beacon Powers go out of businesses costing taxpayers literarily billions of dollars.    

The other issue that companies in the real economy have to address is making profit. If the technology on the market does not allow companies to make money off of alternative energy sources, than producing alternative energy is not worth it. Businesses cannot stay in business without the ability to pay their employees, keep their facilities running, and invest in new technology. Economics teaches us that given a high enough demand for a product, the free market will deliver that product to its consumers. Let the market alone and the demand of consumers will be met. Interfere with the market and money will be misallocated, jobs will be lost, and taxpayers will get very angry.

The government needs to take a lesson from Google, one of the world’s most successful and growing businesses. After investing $168 million into an alternative energy company called Bright Source Energy, Google has since decided to cut its entire renewable energy initiative named Renewable Energy Cheaper Than Coal. Google has realized that its investment into alternative energy was a mistake–the economic laws of demand and profit are simply not met. The U.S. Department of Energy, which has given Brightsource $1.6 billion in federal loan guarantees, needs to realize its past mistakes in companies like Solyndra and Beacon Power, take the advice of Google, and stop pouring billions of taxpayer money into failing energy companies. Just this past Thursday, Abound Solar, the most productive green-energy company in terms of job creation, filed for bankruptcy. What will it take for Obama’s Department of Energy to stop this madness? The free market, not the government, knows what’s best for its customers. 

3 comments
Dave Hallila
07/06/2012

Its always the same argument. It goes around and around in a vicious circle and its rather exhausting. I like to simplify because im just a dumb redneck. Do you believe Americans can clean up the environment and create jobs while making a profit, or do you believe the government will. The proof is in our history. I really laughed at the being "left behind by the rest of the world" part. The U.S.A has been the leader in everything. The rest of the world follows us. We have created the technology that is cleaning up the environment until the government put its giant hand around the throat of the free market and choked out all advancement.

NoMoreRepubs NoMoreRepubs
07/04/2012

Your article is rather useless. Its nice to see that you did plenty of work but you are trying to compare apples to oranges. How can you say "clean energy companies waste more money when hiring than established old energy companies"? First off, oil and coal are cheaper to extract and refine then green energy and as a result, allows the companies to hold on further to their profits. Second, all of the green energy companies you surveyed are no where near the size of the old energy companies. You out of all people should know that costs for running a company are always higher when first starting out or small. Third, how can you say these companies create all these jobs without consumers tax dollars? We give tax breaks to large oil companies.... there's money, shipping of jobs overseas cost american's jobs, which in turn, affects the usefulness and quantity of available tax dollars.... you neglected to name old energy companies that had gone bankrupt of failed.... when those companies crash and the employees have to apply for unemployment, that costs tax payers money.... you see the endless circle of facts that I can pull up or create to combat your ideals? Finally, the government is trying to increase our county's ability to compete in the clean energy future. I'm sorry but if you look outside some of our large cities and think our air, water, and food quality is top notch, you need to re-think what you are talking about. If we can improve our environment by moving towards a cleaner energy future, we need to do so. If we don't, when the rest of the world begins their movement, we are going to be left behind and have to import all of our products and not have and domestically produced products. Its time that you and your other republican buddies think about something besides profits for once. There is more to life than the amount of money you can make at others expense.

-The Republican Nonsense Fighter

Wesley Coopersmith
07/04/2012

First point: That's the point. We use oil and coal because its more marketable than green energy. The government is rejecting the principles of a free market and therefore is failing.
Second point: Many of the green energy companies cited are not start-up companies but established companies that have received federal loans.
Third point: yes we give tax breaks to oil companies but we tax them in the first place. (In a free market they would not be taxed). We also restrict where these companies can drill costing them more money. Old energy companies that go bankrupt do so on their own money not direct taxpayer money.
Final point: Although it may sound like a 'good idea' to increase our country's ability to compete in clean energy, the reality is its harder to do than the government thinks-that's self evident by this article.
Last points: I never said anything about our large cities' air, water, or food cleanliness. I believe we should try to keep our environment clean but the question if how to do it. Privately or government coerced?
Thanks for the comments but please refrain from ad hominem attacks. This is a non-partisan think-tank anyway.